Outsourcing HR Services for Small Business

Brad Dorsey

4 min read ·


Once your business venture expands beyond a solo enterprise, you will need human resources (HR). Yet you can save money and time by outsourcing human resources for your small business. This article explores the basics you need to know about HR services for your small business.

There are many small business HR consulting functions, including compensation, workforce administration, external recruitment, relocation, employee rewards, employee recognition, and benefits administration. HR outsourcing companies can take on any or all of these areas and could help you develop successful vendor relationships.

This article will share: 

  • Benefits of outsourcing human resources
  • What to look for in small business HR outsourcing
  • Types of HR for small businesses


Benefits of Outsourcing Human Resources

The number one reason to outsource small business human resources? You want to focus on more strategic activities. Growing your business can mean more employees, which leads to more time and resources spent on administration. 

Having HR consulting firms for small business take this aspect of business management over for you offers several advantages, including:

  • Access to specialized expertise — you know your business well, but HR consultants are more knowledgeable on  important HR areas such as employment law, diversity and inclusion, or regulatory compliance
  • Expedient services — it can be overwhelming to handle HR in addition to other business aspects. Hiring an external vendor provides access to an organization that specializes in streamlining payroll, recruiting, or benefits enrollment.
  • Improved access for employees — many HR management outsource services leverage software and cloud-based technology. This can make it easier for employees to keep track of their payroll, benefits, and other HR tools.
  • Opportunity for cost savings — if there’s a lack of money to hire new employees and cover in-house HR staff, you could benefit from working with an outsourcing service. This approach can also lower your benefits costs if the vendor has a preferential relationship with benefits providers.
  • Freeing up the existing HR team — maybe you do have people handling HR tasks now, but they’re spread too thin. By outsourcing some elements of HR, you can give your internal talent time and energy to focus on employee engagement and developing your workplace culture.


What to Look for in Small Business HR Outsourcing Vendors

What to look for in small business HR outsourcing

HR outsourcing can be a change both for you and your employees. To manage the transition more smoothly, look for a vendor with established processes that align with how you were doing things before. Or, at least, look for a vendor that will do things in a way that feels familiar. That will make change management easier.

Also, seek out a vendor that understands your industry’s regulations and knows the differences among federal and state rules. The goal is to get outside help to keep you compliant, not risk failing to meet obligations and paying fines.

Vendor service levels are important too. You and your employees want to know your questions will be answered correctly and promptly. The vendor needs to be available to explain things to your employees and guide them through the more complicated HR processes. Every small business wants to treat its employees with dignity and respect. Be sure that the outsourcing vendor will do so.

Try out any software your employees will need to use. Look for user-friendly interfaces. Digital HR tools shouldn’t be  too difficult to navigate or learn to use.

It can be helpful to compare outsourcing vendors by discussing qualitative and quantitative targets. What are  the vendor’s company goals? How do those fit with your own mission and vision? You want this vendor partnership to be a positive one. That will be easier to achieve if you have a similar outlook on HR  management for small business from the outset.


Types of HR Services for Small Business 

When a small business outsources human resources, it contracts with an external vendor to tackle one or many of the HR functions. This can be done in several ways:

  • Business-process outsourcing — Your business offloads a business process, such as payroll or benefits administration, to an external vendor. 
  • Single-source outsourcing — You hand over everything from talent acquisition to time and labor management, as well as payroll and benefits administration plus separation-of-employment processes to a selected vendor.
  • Software-as-a-Service (SaaS) —Your business contracts with a software vendor to help deliver greater organizational agility and provide an opportunity for cost savings. 
  • Professional Employer Organizations (PEO) — In this arrangement, you sign on for a co-employer relationship or employee leasing with a professional organization offering HR resources for small business.

If you take the SaaS route, view the Society for Human Resource Management’s article on “How to Maximize HR Software as a Service.”


HR Solutions for Small Business

HR solutions for small business
Outsourced human resource services for small businesses are gaining momentum. This article has shared the business case for seeking HR consulting services for small businesses. We’ve also explored what to look for and the different types of small business HR services. Look next for an article identifying some of the Best HR Outsourcing Services.

Brad Dorsey